Contemporary Selling, 5e
Chapter 13
Chapter 13 Outline: Compensating and Evaluating Salespeople
Value-Added Information in Chapter 13
• Global Connection – “The Perils of Rewarding A While Hoping for B”
• Mini-Case 13.2 – “American Food Processors”
• Exhibits
o Exhibit 13.1 – “Components and Objectives of Financial Compensation Plans”
o Exhibit 13.2 – “Compensation Methods for Salespeople”
o Exhibit 13.3 – “Guidelines for Effective Formal Recognition Programs”
I. Overview of Salesperson Compensation and Incentives
II. Straight Salary, Straight Commission, and Combination Plans
A. Proportion of Incentive Pay to Total Compensation
B. Incentive Ceilings
III. Other Types of Compensation
A. Sales Contests
B. Expense Accounts
IV. Deciding on the Mix and Level of Compensation
A. Dangers of Paying Salespeople Too Much
B. Dangers of Paying Salespeople Too Little
V. Evaluating Salesperson Performance
A. Performance versus Effectiveness
VI. Objective Measures of Performance
A. Ratio Measures
IX. Summary
X. Key Terms
XI. Role Play #1
Role Play #1
Justin Taylor, who is a really great young salesperson for Upland with a lot of potential to move
up, has gone overboard on expenses!! This is not from incompetence or malice—he just doesn’t
seem to be “getting it.” He is justifying his exorbitance by claiming that you’ve got to spend
Hints for the Instructor:
• Ask the students if they empathize with Justin. His position is that his sales are up 23
percent year-to-date. But of course, the other side is that his expenses exceed anyone
else’s in the district by 32 percent (and his expenses are up 32 percent versus six months
ago).
• The student playing the part of Rhonda in this role play must ensure that she strikes a
balance between gaining compliance on expense control and maintaining his high level of
Role Play #2
Zane Cleary, Rhonda Reed’s boss, makes his only appearance in this role play in which Zane and
Rhonda must meet to develop a list of options for creating the best possible performance
evaluation system for Upland.
Hints for the Instructor:
• Students need to use the chapter material carefully to put together the role-play dialogue
and accompanying list of recommendations that Rhonda and Zane can take to the big
meeting later with VP of Sales Leslie Skipper.
• Encourage students to start with a set of clear goals about what Upland should be striving
for within their performance evaluation system.
Discussion Questions
1. We know that the use of selling teams is common practice today. These teams
sometimes include both salespeople and other employees. As with individual
salespeople, the success of these teams depends in part on the reward systems used to
motivate and recognize performance. How would you develop a compensation plan
that motivates members of a selling team? How can you ensure the plan is fair for
everybody involved?
A compensation plan that motivates members of a selling team should be a combination of
straight salary, plus incentive pay likely in the form of bonuses. However, for a relationship
selling/team selling scenario, the heavier emphasis should be on straight salary because (1) the
It is difficult to ensure that the plan is fair for everybody involved. Although the straight salary
component somewhat keeps a level playing field, some members of the team may perceive that
their salary is not commensurate with their contribution. Likewise, top performers should be
2. When OfficeSolutions, a software producer, went into business, it needed to establish
market share quickly. To accomplish this, it decided to pay the sales force a straight
commission. After two years, the company had a large base of business, but
customers began to complain that salespeople were not spending enough time with
them on postsale service and problem solving. The salespeople said they did not make
any money on problem solving and would rather spend their time finding new
customers. What’s more, salespeople spent little or no time selling the new products
on which OfficeSolutions was staking its future. They said they could sell the old
products more easily and earn more money for both themselves and the company.
How might the company rework its compensation plan to begin to resolve this issue?
Again, the problems for OfficeSolutions are common for firms that use a straight commission
compensation plan. It is difficult to motivate salespeople to engage in relationship-building
activities that do not lead directly to short-term sales, or to sell new products that do not sell
3. A sales manager says, “You can never hold enough sales contests for your
salespeople. The more, the merrier. They are guaranteed to increase your business.”
Evaluate this statement.
This statement is incorrect. Sales contests are not guaranteed to increase business and have
several potential problems:
a. They may provide fleeting results with no lasting improvement in market share
because salespeople may “borrow” sales from before and/or after the contest to
increase their volume during the contest by rushing or holding back orders.
4. Assume you are taking a selling job right out of college. What would be your own
ideal compensation mix? Why?
For salespeople taking a job in relationship selling right out of college, the ideal compensation
mix would be one heavier in the salary component than incentive pay. This gives the new
5. What are the pros and cons of placing ceilings on salesperson incentives? If you were
a sales manager, would you ever advocate incentive ceilings? If so, in what
situations(s) and why?
Pros:
• Ceilings ensure top salespeople will not earn so much that the other employees in the
firm, even managers, suffer resentment and low morale.
Cons:
• Ceilings ultimately reduce motivation and dampen the sales force’s enthusiasm.
• Some salespeople may reach the earnings maximum early and be inclined to take it easy
6. Given the following information from evaluations of the performance of different
sales representatives, what can you conclude about why the reps are not achieving
quota? (Assume each is not making quota.)
a. Rep 1: Achieved goals for sales calls, phone calls, and new accounts; customer
relations are good; no noticeable deficiencies in any areas.
c. Rep 3: Number of sales calls low, below goal. Telephone calls, letters, proposals
all very low and below goal. Evaluation shows poor time utilization. Very high
amount of service-related activities in rep’s log; customer relations extremely
positive; recently has received a great deal of feedback from customers on
product function.
• Rep 2: In this case, the rep appears to be a big part of the problem. He or she has
completed fewer sales calls than needed. The rep is making plenty of phone calls, but
• Rep 3: In this case, the rep is below goal in sales calls as well as nonselling inputs
like telephone calls, letters, and proposals, yet there is a high amount of service-
7. Is sales just a numbers game, as one sales manager claims? She believes that all you
have to do is make the right number of calls of the right type, and the odds will work
in your favor. Make 10 calls, get one sale. So to get two sales, make 20 calls. Is this
the right approach? Why or why not?
The approach claimed by this sales manager is not correct. Although the total number of calls is
one input measure, there are many other inputs and environmental factors that can affect success.
• Expenses
o Total
o By type
o As a percentage of sales
o As a percentage of quota
o Number of meetings held with distributors/dealers
o Number of training sessions held with distributor/dealer personnel
o Number of calls on distributor/dealer customers
o Number of service class made
o Number of overdue accounts collected
8. Jackie Hitchcock, recently promoted to district sales manager, faced a new problem
she wasn’t sure how to resolve. The district’s top sales rep is also the district’s
number one problem. Brad Coombs traditionally leads the company in sales but also